November 21, 2024, 17:26 GMT | Insight) — The Brazilian competition authority is investigating Intelprice Soluções de Precificação (Aprix) and the Sindicato do Comércio Varejista de Derivados de Petróleo no Estado de Minas Gerais (Minaspetro) for alleged anticompetitive practices related to a pricing algorithm designed for fuel stations.
The investigation began after the Superintendence of the Administrative Council for Economic Defense, or CADE, took notice of an online article dated Jan. 20, 2021, which highlighted Aprix’s pricing technology. According to the article, the system generates dynamic pricing suggestions based on cost, price and sales volume.
“The business developed technology for automatic monitoring. Currently, more than 13,000 fuel stations are monitored daily. The system generates dynamic pricing based on price, cost, and volume, and from there, suggests a price to be adopted by the service user,” the article stated.
The authority opened a preliminary proceeding in 2021 and transformed it into an administrative proceeding on Nov. 19, 2024. Aprix and Minaspetro have 30 days to present their defenses.
CADE acknowledges that pricing algorithms can have pro-competitive effects but notes the potential for harm when such technology facilitates coordinated actions among competitors.
“While it is possible that the use of pricing algorithms leads to pro-competitive effects, the boundary of illegality lies in the use of this technology to enable coordinated actions among competitors, thereby artificially raising prices,” CADE explained.
The authority’s analysis will focus on whether the platform fosters uniform pricing behavior among competitors, potentially harming competition.
— CADE’s probe —
The Superintendence looked at Aprix’s advertising materials and public statements by its clients as evidence for the case. Aprix’s marketing emphasizes the benefits of maintaining higher prices to ensure profitability across the sector.
In a promotional video, the company states: “This is how we prevent our clients from making decisions that might sometimes be better in terms of volume but worse in terms of the profitability of the operation. Moreover, it helps maintain the price level across the sector.”
CADE interpreted this as a push for higher pricing, saying that Aprix’s guidelines are “beyond ensuring profitability for the client, maintaining higher prices is crucial to avoid an overall drop in price levels across the sector.”
A technical note from CADE’s Department of Economic Studies (DEE) identified statistically significant price increases at fuel stations using Aprix’s platform. The increases ranged between .02 and .03 reais per liter for gasoline and ethanol and .01 and .04 reais per liter for diesel, excluding GNV.
“Competitive concerns regarding the uniform conduct of fuel station networks using Aprix’s platform are heightened in areas where multiple stations utilize the system,” CADE report said.
At an industry event featuring Aprix and Rede Xodó, a client of the platform, potential competition concerns were openly discussed.
“Many joke with Bernardo [Aprix’s representative], saying, ‘Ah, this could be a problem.’ I joke about it too — talking about cartels and so on. But there’s no cartel. Bernardo or Aprix doesn’t control the competitor. We clearly understand that we analyze our station based on decisions competitors make independently. The competitor makes their own decision, and we base ours on what they decided,” said Rede Xodó’s representative.
CADE required explanations about those statements. Aprix’s answers are confidential.
CADE’s preliminary findings suggest that Aprix may be propagating a message discouraging fuel stations from lowering prices, as the company “appears to advocate for maintaining high prices and avoiding a general price drop across the fuel sector.”
— Minaspetro involvement —
CADE reported Minaspetro’s involvement in the case due its then-President Carlos Eduardo statement defending the technology:
“Pricing today is crucial as it determines both sales capture and business results. A wrong pricing decision can undoubtedly lead to bankruptcy. Aprix’s artificial intelligence and pricing system greatly assist in pricing correctly,” he had said.
However, CADE said that promoting “correct pricing” could implicitly encourage fuel stations to adopt Aprix’s system, further standardizing pricing practices and diminishing competition.